Even when times aren't tough, no one has enough money to do everythingthey want. Nowadays, people have had to do some serious acrobatics to stretch their hard-earned dollars as far as they can.
But even if you dohave enough money left over from your paycheck at the end of the month, juggling between competing priorities is tough. One of the hardest decisions people with children have to make is whether to put money toward their kids' college educations or toward their own retirement.
It's only natural for parents to want to do everything they can for their children. Moreover, with student loans becoming an ever-larger part of financial-aid packages, many graduates are left struggling to repay their debt. Any money you can set aside for your children means less that they will have to borrow to finance their college educations.
Yet in the long run, you may do your kids a bigger favor by taking care of your ownfinancial needs. Most financial-aid calculations exclude parents' assets held in retirement accounts, meaning that putting money toward retirement could actually boost your child's financial-aid package.
Moreover, saving for retirement can put extra money back in your pocket. Putting money into a traditional IRA or 401(k) can give you tax savings that amount to thousands of dollars -- savings that you can then use to meet more of your financial goals.
Finally, by saving for yourself, you'll remove a potentially huge burden from your children down the road. Many people in the baby boom generation have had to deal with giving financial support not only to their children, but also to struggling parents who didn't save enough for their own retirement. Ending that cycle lets your children avoid the huge challenges of providing for their entire families.
Why to Save for Retirement First, Your Kids' Tuition Second
Take five ways to boost your income and five ways to reduce your expenses and debts and you have USA Today's 10 secrets to a financially secure retirement.
Click through our gallery to see the steps you should be taking, including why you should not start collecting Social Security checks at age 62 (Slide No. 5).
"The decision to retire is sometimes made for superficial reasons," Alicia Munnell, director of Boston College's Center for Retirement Research, says. She's heard many stories of older workers quitting suddenly because they had been stuck on airplanes too long during business trips. She heard of a woman recuperating from a sprained ankle who decided she really liked to watch daytime television, so she retired. Some quit because they were peeved at younger bosses. Leaving in a huff without developing a solid exit strategy, though, can be financially foolhardy.
Plenty of investors turn timid as they age, so it's no surprise that many retirees consider stocks off-limits. What they fail to realize is that an ultra-conservative portfolio stuffed with bonds and certificates of deposit can't keep up with inflation. It may be hard to imagine, given the current bloodbath on Wall Street, but over the long run, returns from stocks and stock mutual funds tend to surpass the returns on other investments. Adding stocks to a retirement portfolio can boost your returns without exposing you to reckless risk.
Those lucky enough to retire with a pension must often decide whether to take a lump sum or a lifetime of monthly checks. Grabbing that huge chunk of change all at once is exceedingly tempting, but retiring workers should consider consulting a pension actuary before making such a momentous decision.
You can start collecting Social Security checks at age 62, and most Americans go for it. But their eagerness can curtail their retirement income. If you delay Social Security past age 62, your benefits will increase significantly. Crunch your own numbers, using various retirement scenarios, by visiting the Social Security Administration's website at www.ssa.gov.
What's required to be a successful investor hasn't really changed from the days when stock prices were ripped off ticker tapes. "The whole purpose of investing for the long term is to make your money grow faster than inflation deteriorates it, " says author Lewis Schiff. "For those investors who take the long view and practice the simple arts of diversification, compound returns and dollar-cost averaging, and especially those who do so in tax-advantaged accounts, this growth is well within reach." If you're not confident in your own investing skills, consider using low-cost target retirement funds offered by big mutual fund companies. Next: 5 Ways to Reduce Expenses
People need to remember that it's after-tax returns that matter," says author Taylor Larimore. The after-tax performance of mutual funds can look shockingly different from their posted figures. During the decade that ended in 2007, for instance, Lipper estimated that fund investors lost anywhere from 17% to 44% of their returns to taxes. Many retirees woefully underestimate their tax hit because they incorrectly assume that their tax burden will plummet once their paychecks dry up. A great way to stanch the tax hemorrhaging is to invest in tax-efficient index and exchange traded funds. Next: Secret No. 2
Obviously, carrying a credit card balance is a no-no, but if you haven't managed to erase your debt, there's a painless way to tackle the problem: Call your card issuer. "If you have good credit -- a 700 FICO score or better -- you have a ton of leverage with credit card companies, which are scared and worried about their profit margins," observes author Liz Pulliam Weston. Card issuers hate losing customers, so they're generally willing to negotiate. If you enjoy good credit, you should be able to capture a rate below 10%.
No one's asking you to deny yourself a $4 latte, but if you're living beyond your means, it makes sense to root out the budget-busters. "You have to know where the money is going in order to know where to cut back," Weston says. Recording your purchases for a week can prove a tremendous help.
Investment fees are a natural enemy of retirement portfolios. But many investors are oblivious to this predator. Why? Because investors of mutual funds and annuities aren't billed for these expenses. Instead, the fees are automatically deducted. You can see for yourself the damage that even average expenses can wreak on a mutual fund by using the U.S. Securities and Exchange Commission's mutual fund cost calculator at www.sec.gov/investor/tools.shtml. Try sticking with mutual funds that charge an annual expense ratio of 1% or less.
Regardless of your age, take care of your health and you'll probably save money. "Eat right, exercise and care for your teeth, eyes and ears," says Henry Hebeler, the creator of AnalyzeNow.com, a financial website geared toward retirees. "By the time we get to retirement age," Hebeler adds, "health care costs are the single largest item in most of our budgets, and early prevention of health problems pays huge financial dividends."
Putting money toward your children's college education is a smart and kind thing to do. But make sure you don't neglect your own financial needs. By taking advantage of your chance to set money aside for retirement, you'll be in a much better position to help your kids down the line while hopefully steering clear of difficult financial situations in your future.